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The Value of Heterogeneous Property Rights and the Costs of Water Volatility

Author

Listed:
  • Daniel A. Brent
Abstract
The system of prior appropriation in the Western Unites States prioritizes property rights for water based on the establishment of beneficial use, creating a hierarchy where rights initiated first are more secure. I estimate the demand for security in water rights through their capitalization in agricultural property markets in the Yakima River Basin, a major watershed in Washington State. All water rights are satisfied in an average year, so the relative value of secure property rights is a function of water supply volatility and the costs of droughts are predominantly born by those with weak rights. In aggregate, security in water rights does not capitalize into property values at the irrigation district level; however, there is heterogeneity in the premium for secure water rights. The lack of a premium for district-level water security is robust to a variety of econometric methods to account for correlated district unobservables, and the null result produces an economically significant upper bound on the value to water security for the district. The ability for farmers to adapt to water supply volatility, as well as expectations about water markets and government infrastructure investment, are leading explanations for the lack of an aggregate premium. These explanations are supported by the pattern of heterogeneity in the water security premium.

Suggested Citation

  • Daniel A. Brent, 2017. "The Value of Heterogeneous Property Rights and the Costs of Water Volatility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(1), pages 73-102.
    • Handle: RePEc:oup:ajagec:v:99:y:2017:i:1:p:73-102.
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    File URL: http://hdl.handle.net/10.1093/ajae/aaw057
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    Citations

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    Cited by:

    1. Xinde Ji & Kelly M. Cobourn, 2018. "The Economic Benefits of Irrigation Districts under Prior Appropriation Doctrine: An Econometric Analysis of Agricultural Land‐Allocation Decisions," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 66(3), pages 441-467, September.
    2. Daniel Cooley & Steven M. Smith, 2022. "Center Pivot Irrigation Systems as a Form of Drought Risk Mitigation in Humid Regions," NBER Chapters, in: American Agriculture, Water Resources, and Climate Change, pages 135-171, National Bureau of Economic Research, Inc.
    3. Ji, Xinde & Cobourn, Kelly M. & Weng, Weizhe, 2018. "The Effect of Climate Change on Irrigated Agriculture: Water-Temperature Interactions and Adaptation in the Western U.S," 2018 Annual Meeting, August 5-7, Washington, D.C. 274306, Agricultural and Applied Economics Association.
    4. Cobourn, Kelly M. & Ji, Xinde & Mooney, Sian & Crescenti, Neil, 2017. "Water right seniority, economic efficiency and land allocation decisions," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258271, Agricultural and Applied Economics Association.
    5. Bigelow, Daniel P. & Zhang, Hongliang, 2018. "Supplemental irrigation water rights and climate change adaptation," Ecological Economics, Elsevier, vol. 154(C), pages 156-167.
    6. Claudia Schmidt & Steven C. Deller & Stephan J. Goetz, 2024. "Women farmers and community well‐being under modeling uncertainty," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 46(1), pages 275-299, March.
    7. Xinde Ji & Kelly M. Cobourn, 2021. "Weather Fluctuations, Expectation Formation, and Short-Run Behavioral Responses to Climate Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(1), pages 77-119, January.
    8. Ji, Xinde & Cobourn, Kelly M., 2017. "Water Availability, Land Allocation, and the Role of Irrigation Districts under Prior Appropriation Doctrine," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258377, Agricultural and Applied Economics Association.
    9. Jian Shi & JunJie Wu & Beau Olen, 2022. "Impacts of climate and weather on irrigation technology adoption and agricultural water use in the U.S. pacific northwest," Agricultural Economics, International Association of Agricultural Economists, vol. 53(3), pages 387-406, May.
    10. Dietrich Earnhart & Nathan P. Hendricks, 2023. "Adapting to water restrictions: Intensive versus extensive adaptation over time differentiated by water right seniority," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(5), pages 1458-1490, October.
    11. Browne, Oliver R., 2017. "Do Secure Property Rights Affect Resource Allocation and Firm Production? Evidence from Water Right Adjudications in Idaho," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258498, Agricultural and Applied Economics Association.
    12. Anita M. Chaudhry & Dean H. K. Fairbanks & Christoph Nolte, 2024. "Water Market Participation and Agricultural Land Values," Land Economics, University of Wisconsin Press, vol. 100(1), pages 127-147.

    More about this item

    Keywords

    Water rights; hedonic valuation; water volatility; agricultural economics; Bayesian model averaging; boundary discontinuity;
    All these keywords.

    JEL classification:

    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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